How Paul Tudor Jones Taught Local Man To Start Worrying And Love Volatility

Alas, Fortune’s Stephen Gandel also comes away from the lesson wondering what the point of Paul Tudor Jones is.

In early May at the Sohn Investing Conference in New York, Jones complained that, without wide swings in the stock and bond markets, his fund won’t go up. Without volatility, he can’t make money investing, he said. This seems like an odd admission.

My notion of a hedge fund is that it is a series of sophisticated, targeted bets on stocks or bonds or some portion of the market….

But if you listen to Jones, that’s not what you get when you invest in a hedge fund at all. What you are really getting, if Jones is right, is a one-way bet on volatility….

And it turns out, Jones, a three-decade veteran of the hedge fund business, is right. Hedge funds tend to do well in years in which volatility is rising. And they suck wind in years when it is not….

The bigger problem for hedge funds is this: There are now much cheaper ways to bet on volatility.…

If you are looking to lose money, and considering investing in a hedge fund, the VIX funds are a much cheaper way to do it.

The more frequently you monitor your portfolio, the more likely you are to observe a loss. This is likely to cause short-sighted decisions and could hurt your investment performance. If you are checking your portfolio more than once per quarter, you’re doing it too much.